NEW YORK, NY / ACCESSWIRE / October 22, 2020 / Finance has been one of the most practical arenas for application. Blockchain has also arrived here. In 2020, DeFi collateralized lending has become the hottest direction in blockchain finance and this happens for a reason. Why did the DeFi collateral lending model explode?
In 2020, the unprecedented impact of the COVID-19 epidemic has led to large-scale global shutdowns. Many people have seen a sharp drop in their cash income. Everyone needs collateral to get cash and live a normal life. Numerous small and medium-sized enterprises in industries like tourism, catering, aviation, etc. that were affected the most, urgently need cash flow to maintain the production and sales turnover. Residents urgently need wages to support themselves and families. Even the governments need funds to pay civil servants to maintain the basic operations.
The Fed announced unlimited quantitative easing in March 2020, promised to provide unlimited liquidity, and revealed a series of new plans to help the market. Those include unlimited purchases of bonds to keep the borrowing cost low, and support of the credit flow to businesses and State and local governments. Under the influence of the epidemic, the production and operation activities of enterprises and employees have stagnated. The society lacks liquidity turnover and needs loan financing. The above also happens in cryptocurrency investment. Many investors are in an urgent need of cash turnover. They pledge their coins to get USDT and then sell it for cash. This model is magnified by the actual demand.
Blockchain provides openness, security, and high transparency. With it, collateral lending can have more potential user groups than ever before. Besides, blockchain interoperability supports the emergence and development of brand-new loan products and service models. Therefore, when users not only care about the coin value and investment arbitrage but are actually willing to use collateral lending to solve the real-life needs, DeFi gains the real applied value and enters the life of ordinary people. DeFi collateral lending is the dark horse and top development direction in 2020's blockchain. This is just what everyone needs.
When public chains were still fighting with the stock market, DeFi already grew out of the crypto world. Blockchain technology was originally designed to solve real-world application problems, while speculation is just one direction. DeFi has become so popular because it can enter real business scenarios. It can further advance to the broad real incremental market. This especially refers to the collateral lending model because it suits the real needs of businesses. Users can use the cryptocurrencies they hold as collateral to earn interest on DeFi platforms, or to borrow from the platforms. Those alone are the brightest spots in blockchain development in recent years.
Recently, InfinityDefi https://www.infinitydefi.io (INFI) has been all over. They do an aggregated product with crypto collateral lending and savings. Compared with traditional DeFi lending, INFI's pledge and redemption mechanism is more flexible. The secondary loans and multi-value-added loans pioneered by InfinityDefi https://www.infinitydefi.io can greatly improve utilization of users' funds and unlock a higher value space and liquidity for crypto assets of global users. The model of InfinityDefi https://www.infinitydefi.io is that the same debtor receives collateral financing from different creditors. Normally, users only have one collateralized loan opportunity. For instance, user A pledges USD 1.5 worth of ETH on platform B to get 1 USDT. His pledge ratio is 1.5:1.
INFI is special in that besides regular collateralized loans, user A can take secondary loans and transfer the primary collateral agreement to third party C and borrow again from third party C. This enables a broader financing space. Then, the third-party lender can claim the primary collateral debt. The primary loan agreement can be deemed the secondary collateral. Yet another advantage of INFI is the ultra-low pledge ratio (5 to 10% lower than the liquidation level of the competitor platforms). This enables a broader operating space. INFI's secondary collateral greatly increases the capital flow and utilization rate, prevents the risk of capital chain cut-off, and reduces user risks, encouraging more cryptocurrency users to join.
A case for a secondary collateralized loan on one platform (ETH and USDT)
Participants are user A, a borrower with primary and secondary collateral, and user B, the secondary collateral pool under the Polymerization Pool. A pledges 1.45 USDT worth of ETH, gets a 1 USDT loan from InfinityDefi https://www.infinitydefi.io , and pays a 5% interest (as per INFI's formula for payable interest). Assume A needs some short-term funds. It transfers the pledge agreement to B, becomes the borrower with secondary collateral, gets a secondary loan of 10% of the primary loan (0.1 USDT), and pays a 7% interest (the same payable interest formula). B only lends 0.1 USDT to get a collateral agreement with a 7% interest (INFI's accrued interest formula). To redeem the agreement from B, A pays 0.1 USDT + interest. To redeem ETH from the protocol, A pays 1 USDT + interest. Position coverage is required at 145%. When ETH price falls causing the pledge ratio dip below 1.45, A has to increase its ETH positions.
Liquidation happens at 125%. When ETH price continues to fall and the current pledge ratio becomes lower that the required minimum (i.e. 125%), liquidation starts. The protocol liquidates positions at the market price and B gets the rest of ETH (if any) after paying the principal (1 USDT) + interest + liquidation fee (8%). If B cannot pay the above, the platform liquidates the collateral at the market price to repay the debt of B and the protocol debt and the 8% liquidation fee. The remaining balance (if any) returns to A.
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SOURCE: InfinityDefi